As inflation eased up slightly in July, with gas prices falling and overall consumer prices virtually unchanged compared to the previous month, U.S. consumers showed little signs of frugality. According to preliminary estimates from the U.S. Census Bureau, total retail sales, including spending at stores, online and in restaurants, amounted to $682.8 billion in July, practically unchanged from the revised June estimate of $682.6 billion and up 10 percent from last year’s July figure of $619.2 billion.
While a 10 percent year-over-year increase in retail sales makes it sound like consumers are bursting with confidence, spending freely, it’s important to note that most of that increase is due to higher prices. After all, inflation was still at 8.5 percent in July (and much higher for some categories). Looking at retail sales in constant 1982-84 dollars, spending increased by just under 2 percent last month, which is remarkable, as it shows that consumers have yet to cut back their spending in response to surging prices.
As the following chart shows, much of the latest surge in retail sales can be attributed to rising prices, as consumers are simply getting less bang for their buck. However, even adjusted for inflation, consumer spending looks robust, having yet to decline in face of the latest inflation surge.
This chart shows monthly retail and food services sales in the U.S. since 2000.
